Syndicate Room is backing ambitious early-stage companies and inviting investors along for the ride
Cambridge-based fintech company Syndicate Room is using data analytics to embark on an ambitious new phase of investment in British start-ups.
Founded in 2013, the firm brings together data scientists, investment professionals, software developers and marketers in the name of structuring and funding start-ups. Tom Britton, its co-founder and CTO (and a former professional footballer) describes the core insight of the firm as using data to ‘figure out where the most promising start–ups were coming from’.
Since its launch, Syndicate Room has invested more than £230million in a portfolio of more than 200 companies. In January, the firm announced a £10 million commitment from British Business Investments (a commercial subsidiary of the British Business Bank). The investment comes as a part of the BBI’s regional angels programme targeted at addressing regional imbalances and diversifying the availability of angel finance.
‘Our philosophy of this fund is going in early and going in diverse,’ Britton tells Spear’s, describing the fund as ‘kind of like an ETF or an index’ of the UK’s start–up market. It tracks performance data from more than 1,000 active start-up investors before selecting and co-investing with the best performing ‘super angels’, who have invested in several of the UK’s familiar start-up successes.
Diversification is baked into the process by spreading investments between at least 50 high-growth start-ups over 12 months.
It’s an ambitious approach backed up by the firm’s own research: After identifying the angel investors that had invested in the early rounds of top-100 companies, the firm analysed their entire portfolio since 2014.
‘One of the really interesting things that we found was that if you looked at 600-odd companies and if you were able to invest in all of those companies an equal amount, you will have 28 per cent year-on-year growth in the market,’ Britton says.
Then comes EIS, which was set up by the government to help smaller higher risk trading companies to raise finance. Investors in the scheme can access a number of incentives including tax relief of 30 per cent and no capital gains tax on investments held for more than three years.
For instance, if an investor achieves a successful exit from a start-up after three years, the investor would receive the initial 30 per cent of tax relief and all of the profits without paying capital gains.
Even if it were to fail, investors can combine the relief and additional loss relief so that up to 68.5 per cent of an investment can be offset against tax bills.
The firm is targeting returns for the scheme at £3.50 for each £1 invested.
Minimum investment in the fund is £5,000 – Things are going from strength to strength at much less than the standard entry point for the £20,00 minimum of most EIS funds – but Syndicate Room has seen interest from a ‘fair few’ family offices, Britton reports. Given that the fund is predicated on the future success of British start-ups, it is unsurprising that he is bullish about the UK’s business climate.
‘Despite Brexit, despite the pandemic, there is reason to be optimistic about what’s going on in the UK,’ he says, noting areas such as artificial intelligence, machine learning, healthcare, and life science as burgeoning sectors. ‘That’s attracting a lot of external interest.’